Rents dipped by 0.2 per cent from April to May but are still 1.8 per cent higher than a year ago, new figures show.
The latest Buy-to-Let Index from letting agents Your Move and Reeds Rains reveals that average rents for homes to let across England and Wales now stand at £792 per month, as of May 2016.
This represents a drop of -0.2 per cent since April, and compares to a long-term average monthly rise of +0.4 per cent over every May since the recession.
On an annual basis, rents are now 1.8 per cent higher than in May 2015 – or half the annual rate of rental growth seen at the start of 2016, when in January this stood previously at 3.6 per cent.
Rent rises in London have slowed to just 1.0 per cent over the twelve months ending May 2016. This compares to a peak seen in September 2015 when rents in London were 11.6 per cent higher than a year before at the time.
By contrast, the East Midlands witnessed rent rises of 7.3 per cent over the twelve months ending May 2016, followed by the West Midlands with 5.5 per cent annual rent rises and the East of England with 3.6 per cent.
All ten regions of England and Wales have seen rents in May higher than a year ago. However the joint-slowest annual rent rises have been in Wales and the South East, both seeing rents rise just 0.5 per cent over the last twelve months.
London also leads the negative trend on a monthly basis – with average rents in the capital falling 0.7 per cent between April and May, a faster drop compared to a more modest drop of 0.2 per cent in the month before. London is followed by the East Midlands where rents are 0.6 per cent lower than a month ago and Yorkshire & the Humber with a 0.3 per cent month-on-month fall.
At the other end of the spectrum, Wales leads with a 1.4 per cent month-on-month jump in rents. The North East and the South East follow with month-on-month rent growth of 0.6 per cent and 0.5 per cent respectively.
Taking into account both rental income and capital growth, but before property-specific costs such as maintenance, the average existing landlord in England and Wales has seen total returns of 10.2 per cent over the twelve months to May. This is slightly lower than 10.7 per cent seen a month before, over the twelve months to April, as property price growth has abated.
However compared to the year ending May 2015, when this measure stood at 9.4 per cent, landlords have seen stronger returns over the most recent twelve month period.
In absolute terms this means that the average landlord in England and Wales has seen a return of £18,769 over the last twelve months, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £10,057 while rental income made up £8,712 over the twelve months to May.
While existing landlords have seen total returns cool due to slowing purchase values, the same factors have supported gross rental yields. Despite rents dipping in May, rental yields are showing resilience thanks to a similar dip in property prices on a monthly basis. The gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) is now 4.9 per cent as of May 2016, the same as the 4.9 per cent a month previously in April.
Tenant finances have deteriorated somewhat in May, with 9.3 per cent of all rent due in the month standing in arrears of one day or more. This compares to 8.1 per cent in April 2016.
Adrian Gill, director of lettings agents Your Move and Reeds Rains, says: “This is the equivalent of a flash flood for the rental market.
“Just a month ago rents were heating up and spring was in the air – but this has been put on hold as a tide of new properties to let has disrupted the normal dynamics of supply and demand.
“Landlords escaping a much larger stamp duty bill by completing their purchases before 1st April have now finished their repairs and paperwork, with these homes to let competing for tenants in May and into June.
“That short-term mismatch has made May an exceptional month, with excellent deals available for some prospective tenants.
He adds: “But all tides go out again – and this is definitely no exception. Overall the tax changes to the buy-to-let industry will discourage some property investors, and most of the properties that became available to let in May will have been planned purchases brought forward from later in the year.
“The net effect will not be more properties to let – quite the opposite.
“If new regulations and taxes produce a drought of homes to let, then the overall shortage of housing in the UK will only bite harder for tenants.
“Meanwhile, this heightened shortage and possibly higher rents as a result could also protect landlords somewhat from the financial effects of more punitive rules and regulations.”